A2: Working Capital
An imperative concept for any business is to know how to best adjust their assets for growth. This concept is called working capital. Net working capital is the company’s current assets minus liabilities and gross working capital is the company’s total current assets (Investopedia, 2013e). Net working capital demonstrates a company’s ability to pay back short-term liabilities using their current assets. The necessary working capital depends on the size of the company, and a diminishing or too high amount can be an indicator that assets are not being used prudently or there is excess liability. With a solid working capital, a company can determine where they can grow and best take future risks. This all culminates in the concept of an operating cycle, or the time necessary to change assets into useful resources and then again into assets.
Following is the net working capital for Competition Bikes figured using the net capital model of assets - liabilities = net working capital:
Year Assets Liabilities Working Capital
Six $1,029,303 $105,080 $924,223
Seven $1,353,044 $233,700 $1,119,344
Eight $1,575,831 $300,200 $1,257,631
The amount of working capital for Competition Bikes has steadily grown every year. Because of the manner in which they have distributed their assets and liabilities, they are not benefitting the best way possible. Their cash and equivalents grew more than $300,000 from year seven to eight. The excess money however was not used to invest in new product ideas or to pay debt, hurting their working capital. They also had an increase in their accounts payable during this same time by $65,300 showing they do not pay off debt when they have the money to do so. They experi...
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...ociated with not complying with the law, such as fines or even being shut down is possible. Making sure their executives are up to date on the legalities and being compliant with the laws will in turn help with the shareholders being much more supportive and the company’s financial future will be much stronger.
Conclusion
In conclusion, Competition Bikes is a young company that has had to confront some challenging issues such as expansion, revenue losses, product changes and a poor economy. While the company has strived to make adjustments and grow in these areas, it has also had to deal with problems in their internal business processes, finances, and not being compliant with the law. By making the needed changes to these problematic areas, and becoming compliant with federal law, they stand a good chance at being a strong, competitive and profitable company.
Net working capital represents organization’s operating liquidity. In order to compute the net working capital, total current assets are divided from total current liabilities. When there is sufficient excess of current assets over current liabilities, an organization might be considered sufficiently liquid. Another ratio that helps in assessing the operating liquidity of as company is a current ratio. The ratio is calculated by dividing the total current assets over total current liabilities. When the current ratio is high, the organization has enough of current assets to pay for the liabilities. Yet, another mean of calculating the organization’s debt-paying ability is the debt ratio. To calculate the ratio, total liabilities are divided by total assets. The computation gives information on what proportion of organization’s assets is financed by a debt, and what is the entity’s ability to pay for current and long term liabilities. Lower debt ratio is better, because the low liabilities require low debt payments. To be able to lend money, an organization’s current ratio has to fall above a certain level, also the debt ratio cannot rise above a certain threshold. Otherwise, the entity will not be able to lend money or will have to pay high penalties. The following steps can be undertaken by a company to keep the debt ratio within normal
In order to determine the value of operations, and using proforma income statement and balance sheet statement, Cash flow statement was formulated for the next 5 years. The Account Receivables plus the Inventory minus the Account Payable was determined as Net Operating Working Assets. An organization cost of 0,000 was amortized over the 5-year period.
A company that announces deficiencies in its internal control will more than likely have a fall in their stock prices. Investors will not trust that company’s financial information. The investors know that the company will be hit with fines for not complying with the regulations. No honest investor wants to be involved with a company that defies the government.
...efits from adopting unfair business practices and discouraging competition are much higher than the expected penalty and punishment. With changing time, there is need to make these laws more effective and relevant.
Costco Wholesale Corporation was an uncommon type of retailers called wholesale clubs. These clubs differentiated themselves from other retailer by requiring annual membership purchase. Especially in case of Costco, their target market is wealthier clientele of small business owners and middle class shoppers. They are now known as a low cost or discount retailer where they sell products in bulk with limited brands and their own brand. The company is competing with stores like Wal-Mart, SAM’s, BJ’s, and Sears. The case begins with an individual shareholder, Margarita Torres, who first purchased shares in 1997 and who is trying to evaluate the operational performance of the business in order to make a decision rather or not purchase more shares
The size of the company has a fluctuating impact on the ramifications of the law administering the inconvenience of risk on companies. The thought of forcing the liability is unique in relation to the worry of distinguishing the tenet, which will be connected to the case. In specific cases, it might be an improper law to carry out cases, which lacks the foundation of criminal liability of the company involved within the case. Big companies have a convoluted chain of command, which has multilevel frameworks inside the
Obviously, this case aims to evaluate Joanna’s analysis. Throughout the analysis, we will estimate the cost of debt, cost of equity, and cost of capital through different financial analysis models.
This case study is about “Specialized Bicycle Components Inc.” known as Ride the Red “S”. Specialized was founded in 1974 by Mike Sinyard. According to Chris Murphy, director of marketing for Red “S”, specialized is for serious riders. He says, “The customer is buying the ride from us, not just the bike.” The company began to produce its own bike parts by 1976, and introduced the first major production mountain bike in the world in 1980. Specialized now has an extensive global distribution network of 5000 retailers in 35 countries in Asia, North America, South America, and Australia. They maintained a reputation as the technological leader in the bike and bike accessories. The formal mission is still the same since they established the company “To give everyone the best ride of their life.”
Many other businesses may not want to do business as the company was involved with immoral behavior. The unethical business practices of the company will also gain exposure in the media and to the public (Nicol, 2015, n.p). Employees no longer keep unethical activities of the company to themselves. As a whistleblower, they may be perceived as a traitor, but in this case the senior executives are being traitors. They are taking money from immoral behavior and tarnishing the name of the company (Nicol, 2015, n.p).
Current assets include cash and bank balances; inventory of raw materials, work-in-process, and finished goods; marketable securities; borrowers (net of provision
Italian manufacturer Piaggio ranks as one of the world’s top four players in its core business. It has consolidated leadership in the European 2-wheeler market. Piaggio should not miscalculate its competitors. Competition in the industry is very powerful, not only nationally but internationally as well. This is due to two well-established companies in this sector which are the Japanese Yamaha and Honda. Yamaha and Honda strengths are their long-run experience in the sector and the high quality image of products. Due to participations to the motorcycle championships, these two companies constantly receive positive feedbacks to their efforts in researching for first class products. In the future, other kinds of competitors are expected to arise: Chinese companies whose ability to imitate and create similar products at highly competitive prices is getting more and more dangerous (Piaggio, 2008)
Net working capital, is a key figure to watch only if you have several years worth of reports to compare.
The capital maintenance concept used results in differences between the relevance and faithful representation of the data that appears in the balance sheet and income statement. The difference between financial capital maintenance and physical is the treatment of unrealized holding gains and losses. Financial capital maintenance does not allow for unrealized holding gains and losses. Only realized gains and losses are included in income because they “are considered a return on capital” (Schroeder et al., 2013). This means, “income is measured only after the investment is recovered” (Gamble, 1981). Physical capital maintenance “consider[s unrealized holding gains and losses] as returns of capital and do[es] not include them income.” (Schroeder et al., 2013). Instead, they are treated as adjustments to equity and included in other comprehensive income. Therefore, with physical capital maintenance “an increase in an entity’s wealth as...
When we look at the laws that have been broken by so many of the top named corporations, I see why they continue to operate in the capacity that they do. When you take in to account the amount of money taken in for overall profits each year versus the fines levied “if” they are caught breaking the law I can see why they take their chances at being caught or not. Although the fines given are typically large amounts, they really are a mere slap on the wrist when compared to the money earned each
There are many techniques used to manage cash including, the nature of asset growth, controlling assets, patterns of financing, the financing decision, a decision process and shifts in asset structure. For any company the growth of asset results in a growth in wealth if managed effectively. The typical firm usually forecast the rate of sales to ensure that the production of goods match sales so there is not an overflow if inventory. As a company expands and produces more items they will acquire permanent current assets. Permanent current assets can be described as a constant inventory of items because it is almost impossible to predict the market and the demands of the consumer.